Search form

Forget about the Mandate. Let’s Fix Health Care

On June 28, the Supreme Court upheld President Barack
Obama’s health-care law. Opponents and supporters are still
sparring over whether its mandate is a tax. It’s time to get
over this debate. The mandate’s mild penalty was never this
law’s central economic and policy flaw.

The legal distinctions among a mandate, a tax, a penalty, or a
credit, and between federal and state powers, are important legally
and constitutionally. But they are irrelevant in economic terms for
this law.

To commentators who are apoplectic that the federal government
is using taxes to nudge us to buy health insurance, I say this:
Hello? The tax deduction for buying an electric car, or the
mortgage-interest deduction for buying a house, is economically
equivalent to a tax for not buying health insurance. Maybe all are
bad, but did you really expect the Supreme Court to rule the
mortgage-interest deduction unconstitutional in a case brought
against the health-care law?

Let’s stop playing lawyer
and get back to economics and policy.

Let’s stop playing lawyer and get back to economics and
policy. Opponents: Return to articulating the disastrous economic
and health-care effects of this law. And articulate better ways to
solve the mess. Supporters: Try to make this Rube Goldberg
contraption work. Good luck.

Pre-existing Conditions

On the July 1 “Meet the Press,” House Minority
Leader Nancy Pelosi said: “If you are a person who has a
child with diabetes, no longer will they be discriminated against
because of a pre- existing condition. If you’re a woman, no
longer will you have to pay more. No longer will being a woman be a
pre-existing medical condition,” and “if you are
senior, you pay less for your prescription drugs and nothing for a
preventative check.”

She added: “And for everybody, no more lifetime limits on
the coverage.” And young people will be covered by their
parents’ policies.

A message to opponents: If all you (OK, we) can marshal in
response is that you don’t like the legalities of a $1,000
penalty/tax for not buying insurance (S5MANH), we’re going to
lose. And we should.

Let’s start with the obvious question: Who is going to pay
for all this? Someone has to pay for every expanded benefit,
whether through higher premiums, higher prices or higher taxes. And
tapping “the rich,” reducing administrative costs or
executive pay would just be a drop in the bucket.

The more important fact is that the law won’t work.

Health care is a complex service, in which each person’s
needs are blurry, and the line between “need” and
“want” blurrier still. Imagine if the government
decreed that law firms, car-repair shops, or home contractors had
to charge everyone the same price, and couldn’t turn anyone
away. “House fix,” for example, would be $1,000 per
year, no matter how large the house or what shape it’s in.
Why do we think this will work for medical services?

Health care will be rationed. Period. If we don’t ration
by price, we will ration directly.

The Patient Protection and Affordable Care Act is a bureaucratic
nightmare. About 2,700 pages of law, 13,000 pages of regulations
and counting, 180 boards, commissions and bureaus, according to one
media report.

It’s an invitation to crony capitalism. Thousands of
companies have already asked for, and won, exemptions. They had
better be in the good graces of the Department of Health and Human
Services.

Enough. There are plenty of analyses of all the ways this law
won’t work.

Not Enough

But one cannot complain without alternatives. “Repeal and
replace?” OK, but with what? Pelosi’s promises address
serious concerns. It isn’t enough to say “that costs
too much,” or “it should be
unconstitutional.”

Sensible alternatives exist. This need not be a choice between
the Obamacare mess and the mess we had before.

Fix health care, not just health insurance. Where are the
health-care equivalents of Southwest Airlines Co., Wal-Mart Stores
Inc. (WMT) and Apple Inc. — innovating, dramatically lowering
costs and bringing everyday low prices to health care? They have
been kept out of the market by anti-competitive regulation. As one
small example, in my state of Illinois, every new hospital,
expansion of an existing facility or major equipment purchase must
obtain a “certificate of need” from a state board.
“Need” explicitly means that it doesn’t undermine
incumbents’ profits.

Insurance should be insurance, reserved for unpredictable and
catastrophic expenses. Car insurance doesn’t pay for oil
changes, and you shouldn’t pay for checkups through health-
insurance premiums. Such insurance would be a lot cheaper, and more
people would buy it.

Insurance should be individual, portable from job to job and
state to state, and guaranteed renewable for people who get sick.
That neatly solves the pre-existing-condition nightmare. Insurance
companies would be happy to sell such coverage. The government
stands in the way, by subsidizing employer-based group plans at the
expense of individual insurance. (My “Health status
insurance” proposal is one example among many that describe
functional private health insurance.)

Cost control is achieved in only one way. Competition. Not price
controls.

Innovation comes from competition, too, and from
innovators’ ability to initially charge rich people more
— and their ability to pay it — make great profits, and
then commoditize. You cannot have innovation in a government cost-
controlled system.

It takes courage these days to have any trust in markets, or for
politicians to oppose handouts to voters. Without that courage, our
health-care system, and our economy, will fall apart.